Porter Airlines plots path forward as rivals fill planes

Porter Airlines plots path forward as rivals fill planes

The recent surge in demand for air travel in Canada appears to be leaving Porter Airlines Inc. behind, with traffic falling precipitously at the Toronto Island-based airline while its rivals consistently report record months of filling their planes.

But Bob Deluce, Porter chief executive, argues that the decline in traffic at his airline in recent months is the fallout of a concerted effort to drive up prices and bolster its balance sheet as Porter plots the next phase in its development.

“We expect to make an announcement over the next several months where we’re heading over the next two or three years and what that will involve in terms of growth, new aircraft and destinations,” he said.

While those plans are still being finalized, Mr. Deluce said the next phase could include another new aircraft order, expansion out West and even possibly taking another swing at an initial public offering.

If we look ahead, we’re seeing very strong advanced bookings for our spring and onward

Both Air Canada and WestJet have been consistently reporting record load factors – or the average amount of seats filled on their planes – in recent months, including in their February figures that were released earlier this week.

But as demand peaks at both of those airlines, Porter appears to be heading in the opposite direction. It said its load factor fell 2.1 percentage points in February to 53.6% after a near 9% drop in traffic year-over-year during the month.

That has been a consistent pattern over much of the past six months.

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But Mr. Deluce said the declines are the result of Porter changing its pricing strategy in recent months to encourage price-sensitive travellers to book further out and in turn raise overall prices at the airline.

He said the strategy is working, with yields improving. And while this has had a negative impact on traffic, as the strategy takes hold, he expects both traffic and load factors to rise again in 2013.

“You do get a drop-off in load factor, but what we are seeing is that even those price-sensitive passengers who may have enjoyed some closer-in discounts have now adjusted their booking patterns,” he said. “That’s why, if we look ahead, we’re seeing very strong advanced bookings for our spring and onward.”

Fortunately, Porter has a little more flexibility with its load factors than its rivals.

Because of their higher cost structures, both Air Canada and WestJet need to have load factors in the 70s or 80s before they can turn a profit.

Porter, on the other hand, with the help of its fleet of fuel-efficient Bombardier Q400s, can turn a profit with a load factor in the mid-to-high 50s, Mr. Deluce said, adding the airline turned a profit in 2012 and will pay a profit share to employees.

Certainly, there’s little evidence that Porter’s reputation has been faltering.

While the airline has faced some weather-related issues, including being grounded by fog in the spring and fall, Porter consistently delivers one of the best — if not the best — on-time performances amongst Canadian airlines.

It also has received numerous accolades, including having the highest customer satisfaction among Canadian carriers on Ipsos’s Canadian Business Travel Study and being ranked as the second best small airline in the world by Conde Naste Traveler.

Porter has been plagued with an ongoing strike by about two dozen ground crew in recent months. But that has had little impact on the company’s operations with managers filling in for the striking workers, Mr. Deluce said.

He said he hopes to resolve the dispute, which he said revolves around compensation. But there are no plans to return to the bargaining table, he added.

Mr. Deluce said the experience at Toronto Island should also be improved with the introduction of the passenger tunnel there that is slated to be completed early next year, and Porter invests in better technology to combat weather conditions there.

While Mr. Deluce acknowledged that intense competition in the eastern triangle has had an impact on its loads as well, Porter is not one to shy away from a fight.

Mr. Deluce said he isn’t concerned about WestJet becoming even more competitive in the corridor between Toronto, Ottawa, and Montreal, when it introduces its new low-cost regional carrier, Encore.

In fact, he issued a warning of his own as he plots Porter’s path forward.

“If I were WestJet, I’d be trying to protect their turf against the additional attention Air Canada is focusing there,” he said. “If I were WestJet, I’d also be a little bit concerned that one of these days Porter may move into Western Canada.”

He noted Porter currently flies as far as Thunder Bay, and that Winnipeg isn’t too far off that mark. He said the higher yields in the West are something Porter is eyeing.

“I would say to WestJet, ‘Enjoy those higher yields while you can,” he added.

Porter’s expansion over the next few years, including another potential order of Q400s, may or may not be funded by another run at a initial public offering after its failed attempt in 2010, depending on market conditions, Mr. Deluce said.

“We don’t need to do that. But we’ve always said we’d entertain going back to the public market,” he said. “It’s sort of a nice way to fund growth and development. But there’s no point in being there if there isn’t an appetite.”

He acknowledged that the runup in both Air Canada and WestJet’s shares in recent months indicates the market might be friendlier now for an IPO.

“It’s much better than it was in 2010. Who knows? Our timing may be good,” he said. “We haven’t made any commitment with respect to doing anything this year. But it’s not something that would take us much time to gear up for if we decided to do it.”

But he said it wasn’t something that was in his “immediate contemplation.”

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